March 10, 2015

When what is safe is becoming less and less sufficient for our needs, is it not high time we take some risks?

Sir I refer to Claire Jones’ and Elaine Moore’s “ECB launches QE amid negative yields” March 10.

The IMF "Report on the Global Financial Stability 2012" lists 74.4 trillion U.S. dollars of Global Safe Assets: 33.2 (45%) in sovereign bonds AAA / AA; 5 (7%) in sovereign bonds A / BBB; 16.2 (21%) in securities with special guarantees; 8.2 (11%) in corporate bonds rated investment grade, 3.4 (5%) in other governmental or supranational debt; and 8.4 (11%) in gold.

At this moment gold, though clearly safer than in 2012, represents smaller amount; and much of sovereign bonds have become so safe that with negative interest rates it already guarantees a loss. And so when what is very safe disappears in front of our eyes, should we not begin to worry something is very wrong?

Once again, for the umpteenth time, what is wrong is that regulators imposed on banks credit risk weighted equity requirements which work like hallucinogens, intensifying banks’ perceptions of credit risk, making what’s perceived as safe look much safer yet, and what is perceived as risky so much riskier. Yes it is insane. It demonstrates the Basel Committee, Financial Stability Board, ECB, Mario Draghi and so many more are way over their heads in Europe.

If Europe cannot find in itself the strength to shake off those crazy bank regulations, so as to allow bank credit to flow to “risky” not really risky SMEs, entrepreneurs and start-ups, those who stand the best chance of producing something new to advance the European economies… it looks like the dark ages are here again.